Category Archives: crash

The dangers of flying blind

I always loved flying.  When I was young and single I learned to fly a plane.  Taking off and flying was easy.  Landing safely was the hard part.    There was another danger for amateur pilots like me, flying without being able to see outside the cockpit.  The name for it is flying blind.

Professional pilots learned to fly blind.  They need to be able to fly in all kinds of weather, even if they are in clouds.  They call that “instrument flying.”  It means they don’t look outside, but read their instruments to complete their flight plans and land safely.  Amateur pilots, on the other hand, can get into serious difficulty if they accidentally fly into clouds.  If they can’t see outside they become disoriented.  It’s one of the most common ways that amateur pilots lose their lives.

When it comes to getting to their financial future, too many people are flying blind.  Over the last two decades too many people have seen their dreams crash and burn because they were not properly prepared.

Approaching retirement without a formal plan is like the amateur pilot who takes off in good weather.  Without noticing it he finds that there are clouds above and below him.  He can’t see out.  He becomes disoriented, not knowing which side is up, uncertain of his direction.  Now he’s flying blind and he’s in serious trouble.

What’s the best way to avoid this kind of trouble?  Two things are needed.

  • Make sure you have a plan that shows you a path to a safe landing.
  • Hire a “professional pilot” – a Registered Investment Advisor – who is experienced in navigating the hazards of the market and who won’t panic when the clouds move in.

Please contact us to see if we can help you land safely no matter what the weather.

Contact us for a free copy of our Investopedia article “How Advisors Can Help Surviving Spouses.”

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The Trend: Fewer “Self-Directed” and More “Advisor-Reliant” Investors

According to Cerulli Associates more households rely on advisors than ever before.

Since 2010, the households classified as “self-directed” investors had shrunk from 45% to 33%, while households termed by Cerulli as “advisor-reliant” investors — regularly consulting with an advisor — had grown from 34% to 43%.  What drives this trend?

I can think of several reasons.  Two that come readily to mind are:

  • the increasing complexity of financial markets and
  • the number of dramatic financial shocks that people have experienced in the last 15 years.

I can remember a time, back in the 20th Century, when “investing” meant calling a well-know investment firm and buying a stock, like General Motors.  Well, good old GM went bankrupt a few years ago and since then about 25,000 mutual funds have appeared.  In addition there are options, derivatives, structured products, and – of course – ETFs (exchange traded funds).  And that’s just here in the good old USA.  But there’s a whole world out there that people can invest in: foreign stocks, foreign funds, world stock funds, emerging markets, commodities, to say nothing of foreign bonds and currencies.

Few people have the time to study all of these, so the rational thing to do is to find a financial advisor to help you make sense of it.

And then there are the financial disasters that decimated many self-direct portfolios.  In the year 2000 the dot-com bubble collapsed, devastating the portfolios of those riding the tech boom.  And who can forget the housing bubble that led to the financial crash of 2008, wiping out some of the major banks and investment firms and ending the dreams of a comfortable retirement for many people?  Professional advice should be concerned with risk control as their first objective, followed by getting a fair rate of return on your invested assets.

During all this time, financial advisors who were once employees of the major investment firms decided that they could best serve their clients by declaring their independence.  They set up their own firms, becoming Registered Investment Advisors (RIAs) offering fiduciary services.  That is another development that has helped to make financial advice more accessible to individuals and families, the mom and pops of the investment world.

If you’re one of the shrinking do-it-yourself crowd, check us out and see why you may be much more comfortable with us as your advisor.  And if you are one of those with an advisor but wonder if you could do better, feel free to get a second opinion.  We’re a family firm.  We deal with several generations of families that look to us for guidance.  We look forward to hearing from you.

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That New York Stock Exchange “Glitch”

On Wednesday, July 8th the NYSE halted trading for just under four hours. Since it coincided with some other computer snafus, including one which caused United Airlines to cancel some flight and delay others, rumors of computer hacking by foreign forces flew.

My source on the floor of the exchange – Art Cashin – characterized it as a “malfunction” which was detected early and trading was halted so that there would be no trading errors. The NYSE is sensitive to this since the “Flash Crash” of 2010 during which the exchange computers ran amok and sent orders to the wrong places. It resulted in a very brief period when suddenly Blue Chip stocks traded for pennies causing losses to investors and traders alike.

To prevent another occurrence of 2010 the NYSE put in safeguards and Cashin commented “While I would prefer not to go through it again, the safeguards clearly worked and mispricing and losses were averted.”

When the NYSE closed down, investors were able to trade stocks on 11 other exchanges including NASDAQ, proving that redundancy in the US markets prevents markets from seizing up.

Despite the glitch, the market yesterday was reacting primarily to the melt-down of an overheated Chinese market; a situation that the Chinese government was attempting to halt. As of trading this morning, that seems to have happened and the US markets are up about 1% as of 11:00 AM today.

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Are you feeling financially vulnerable?

The 21st Century is still a teen-ager but it’s already seen tremendous disruption. The financial picture for many families is particularly scary. Large numbers of people are living paycheck to paycheck. Those that saved for retirement experienced the “Tech Bubble” bursting in 2000 and the real-estate based financial melt-down of 2008. That left a mark.

In real terms it meant that retirement had to be postponed, living standards were reduced, homes were repossessed and lots of people came to imitate the “cat on a hot stove.” The series of panics left a lot of people sitting on a pile of cash, earning virtually nothing. Like the cat that jumped on a hot stove and burned himself, he won’t jump on a hot stove again. But he won’t jump on a cold stove either.

At times like this, when every action seems fraught with danger, it helps to have someone who’s an expert to guide you to your financial goal. If you’re not quite sure who to talk to, give us a call. We may be the ones you have been looking for.  We’re a fiduciary.  That means we are legally and morally obligated to put your interests first, ahead of our own.

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It took 15 years, but the NASDAQ is back.

Fifteen years after it soared to its peak at the height of the dot-com era, the Nasdaq Composite Index cruised to a record closing high yesterday.

In the year 2000, the NASDAQ, driven to ridiculous heights by the technology stock bubble (often referred to as the dot.com bubble) collapsed, taking lots of people’s dreams with it.

A spike in stock prices driven by greed collapsed as people fled the technology sector in fear. As an aside, it provided a great opportunity for those who had the courage and skill to find outstanding bargains amidst the rubble.

The tech bubble of the 1990s is a great lesson in investor psychology. When values are driven by hope rather than by reality, people stop being investors and turn into speculators. The sad story of that time is that even mom and pop investors were caught up in the frenzy. And the collapse ruined many plans and some lives.

We read today about how great index investing is. It cheap, it’s effective and it works … until is stops working. Those who bought the NASDAQ index in 2000, if they had the fortitude to stick it out, would have found themselves breaking even after 15 years of being financially under water.

A good investment strategy always looks at risk. We know that “trees do not grow to the sky” and things that look too good to be true … are not. The first rule of making money is not losing it.

Our investment philosophy is focused on risk control. What that means in real terms is that when the market takes one of its periodic tumbles, it won’t take us 15 years to get even.

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